VNET Group, Inc. (VNET) Q4 2021 Earnings Call Transcript

VNET Group, Inc. (VNET 0.68%)
Q4 2021 Earnings Call
Mar 30, 2022, 9:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and good evening, ladies and gentlemen. Thank you and welcome to VNET Group Inc.'s fourth quarter 2021 earnings conference call. [Operator instructions] We will be hosting a question-and-answer session after the management's prepared remarks. With us today are Mr.

Samuel Shen, chief executive officer and executive chairman of retail IDC; Mr. Tim Chen, chief financial officer; and Ms. Xinyuan Liu, investor relations director of the company. I will now turn the call over to the first speaker today, Ms.

Liu, IR director of VNET Group Inc. Please go ahead, ma'am.

Xinyuan Liu -- Director of Investor Relations

Hello, everyone. Welcome to our fourth quarter 2021 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR website, as well as on Newswire services. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements, except as required under applicable laws.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on our IR website at ir.vnet.com. I will now turn the call over to our CEO, Samuel.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

All right. Thank you, Xinyuan. Good morning and good evening, everyone. Thank you for joining our fourth quarter 2021 earnings conference call.

We concluded 2021 with strong operating and financial results. Operationally, we successfully achieved this year's delivery target by adding approximately 25,000 cabinets in the full year of 2021, including 13,276 cabinets that were delivered in the fourth quarter. Financially, for the full year of 2021, we grew our revenue by 28% and our adjusted EBITDA by 32%. We attribute our achievements to favorable government policies, robust marketing men, precision strategy execution, and methodical service expansion.

First, we are pleased to see the favorable government policies continue to provide a strong tailwind to our industry development. Last month, the Eastern Data, Western Computing plan was joined and released by China's National Development and Reform Commission together with three other essential regulatory departments. Of the eight national computing hubs, we have already deployed our data centers in the Beijing-Tianjin-Hebei region, Yangtze River Delta, Greater Bay Area, Chengdu-Chongqing Economic Circle, and Inner Mongolia Autonomous Region. In addition, this January, the State Council of China unveiled the first five-year growth plan for the digital economy, highlighting the sector's role in reshaping global economic structure and rolling out development targets through 2025.

The plan laid out measures for operating national infrastructure, bolstering the role of data at the production element, and promoting digital transformation. The plan also gives priority to the development of digital infrastructure, a pillar of achieving digital economic prosperity that will also spur investment and drive overall economic growth. During the fourth quarter, we received orders, not only from [Inaudible] technology companies in the internet sectors but also traditional companies in brick-and-mortar industries that are transforming through digitalization. In addition, we're seeing growing demand in both the wholesale and retail segments.

In order to seize this burgeoning market demand, we maintained a laser-sharp focus on executing our dual-core strategy to offer both wholesale and retail IDC services, enabling us to achieve solid operating results. On the cabinet delivery front, we added 13,276 cabinets on a net basis in the fourth quarter to 78,540 cabinets as of December 31, 2021. Despite a myriad of challenges, including equipment delivery delays caused by the COVID resurgence in certain regions of China, global chips shortages, and construction difficulties due to excessively cold weather, to meet our annual delivery targets against all odds is a strong testament to our solid execution capabilities, developed on the foundation of our extensive experience in the IDC sectors. This achievement demonstrates our superior capabilities in project management, logistics, as well as suppliers and government relations.

In addition, we successfully leveraged our extensive technological expertise to explore expansion resources. Turning to our monthly recurring revenue, our retail IDC MMR reached a new high of 9,301 in the fourth quarter, representing 2% year-over-year growth. Our continued growth in MMR is a manifestation of the increasing endorsement from our existing customers. As we continue to improve our service capabilities and enrich our one-stop solution offerings, our existing customers expanded their contract scope accordingly to include more value-added services such as interconnectivity, bare metal services, hybrid cloud services, O&M, and more.

We are also making good progress on our utilization rate. Our compound utilization rate increased to 61.6% in the fourth quarter, compared to 59.8% in the previous one. This increase was mainly driven by consistently strong demand from the internet sectors and the visualization trend in the traditional industries such as financial services, automobile, manufacturing, and local services. The utilization rate for mature cabinets, which consisted of cabinet deliveries prior to and during 2019, was 76.7%, compared to 75.5% in the previous quarter.

The utilization rate for ramp-up in newly built cabinets, which consisted of cabinet deliveries in 2020 and 2021, was 39.6%, compared to 34.7% in the previous quarter. That being said, we do expect to see some seasonal fluctuations in the utilization rates in the first quarter. This is because each year, we reclassify mature, ramp-up, and newly built cabinets in the first quarter, and we delivered a large amount of newly built cabinets in the fourth quarter of last year. On the resource front, we have recently secured new resources, exceeding 20 megawatts in capacity, at a premium location in Beijing, and we expect to deliver the cabinets over the next two years in multiple phases.

Additionally, we continued to secure more resources in other Tier 1 cities and surrounding areas. On the wholesale business side, while maintaining our ramp-up speed, we continued to securing more orders from existing and new customers. Our customers in the internet sectors and cloud computing industry maintain a healthy pace of development and ramp up fast to meet their increasing data processing needs. In the fourth quarter, we won a pre-committed order of approximately seven megawatts in capacity from an existing internet customer.

Recently, the same customer awarded us a further pre-committed order of approximately 11 megawatts in capacity. And we also secured three other orders, totaling approximately five megawatts in capacity. Two of them were multiyear contracts from our existing customers in the internet and technology sectors, respectively, while the third one was a multiyear contract with a state-owned cloud enterprise in the Southern region -- Southern Western region of China. We continue to see the increase in demand in our wholesale business and are confident of our future prospects in this segment.

Turning to our retail business, the digital transformation trend further fueled our business growth across multiple verticals. We continue to see strong demand from several industries, including financial services, automobile manufacturing, local services, and IT services. In addition, we also saw increased demand from traditional industries such as logistics, manufacturing, and construction. For example, several globally renowned companies partnered with us to expand their business in China during the quarter, demonstrating our strong customer recognition, exceptional operating track record, and superior IDC technologies.

These customers include a leading global investment bank, the world-leading credit rating service provider, and a global leader in the premium in luxury car industry. We have now reached over 1,400 IDC customers in total, and they operate in a wide variety of industries. This growth and diversification of our customer base will help us to mitigate any potential adverse regulatory changes and also serves as a secure foundation for the future development of our dual-core strategy. For our Blue Cloud business, we continued to grow the business by providing industry specific solutions to help our customers improve their operational efficiency and reduce costs.

Witnessing the unprecedented supply chain disruptions caused by the COVID-19 pandemic, we decided to proactively develop a solution to help our clients resolve acute pains in their logistics management and shorten their product-to-market time. We recently initiated a logistics execution system, one of our key such offerings to IDC customers in the automotive industry. This SaaS offering improved support for lean manufacturing, with the aim of minimizing lead time and increasing customer satisfaction by fulfilling tailored requirements. The system also provides better warehouse management by synchronizing online and offline orders, enabling direct ordering from manufacturers, eliminates the need for intermediate distributors, allowing manufacturers to produce goods based on the actual needs of customers.

During the quarter, Niutron, a new local EV manufacturer, began using our logistics execution system and provided excellent initial feedback. Utilizing our successful execution experience and product development capabilities, we expect to expand our product reach to serve more upstream and downstream industry participants in the automotive industry and expand into various other sectors going forward. Beyond the execution of our strategy, we further explore options to diversify our financing solutions and enhancing the resilience of our business. In January, we reached an agreement with Blackstone, the world's largest alternative investment firm.

Pursuant to which, Blackstone made an additional investment in VNET by purchasing $250 million of our convertible notes. Last December, we signed a master joint venture investment agreement with a sovereign wealth fund. Together, we will form joint ventures to pursue development and investment opportunities in multiple build-to-suit hyperscale data center projects in China. As a leading data center service providers in the industry, we have always considered sustainable development as a core part of our mission since inception, and ESG strategy is an integral part of our long-term business success.

We aim to achieve both carbon neutrality and 100% renewable energy by 2030, and we have also committed to a number of ESG initiatives. First of all, we strive to contribute to a sustainable future. We became a signatory of the U.N. Global Compact in November 2021 and now pledged to consider all 17 U.N.

Sustainable Development Goals in our comprehensive business development. Similarly, in the pursuit of increasing the renewable energy ratio in our energy consumption, we successfully signed strategic cooperation agreements with China Huadian Corporation, Shanghai Electric Wind Power Group, and China Southern Power Grid Energy Efficiency and Clean Energy Co. In addition, as a response to the international initiatives and domestic callings against climate change, we're now examining climate-related risks and opportunities concerning the industry and have recently committed to supporting the Task Force on Climate-Related Financial Disclosures, aka TCFD. Last but not least, we continue striving to decrease the PUE of our data centers.

The average PUE of our stabilized data center was 1.37 in 2021, notably lower than the industry average. Turning to our capital market initiatives, I would like to take the opportunity to share with you that we are planning a secondary listing on the Hong Kong Stock Exchange. We believe a secondary listing in Hong Kong will provide our shareholders with an additional trading venue while offering them greater protection amid an evolving regulatory environment. The timing of our contemplated secondary listing is subject to market conditions and regulatory approvals, however.

In summary, 2021 was a rewarding year. We maintained consistent execution of our dual-core strategy to achieve sustained growth, and we also succeeded in meeting our annual target for 2021 by delivering approximately 25,000 cabinets. In consideration of the uncertainties in the macroeconomic environment, we would like to revise our annual cabinet delivery target from 25,000 cabinets to a range of 14,400 to 17,400 cabinets for the year of 2022. With that, I would now turn the call over to Tim.

He would discuss our financial results for the quarter and his thoughts on our future growth. Hi, Tim.

Tim Chen -- Chief Financial Officer

Thank you, Samuel. Good morning and good evening, everyone. Before we start our detailed financial discussion, please note that we will present non-GAAP measures today. Our non-GAAP results exclude certain noncash expenses, which are not part of our core operations.

The details of these expenses may be found in the reconciliation tables included in our press release. Please also note that unless otherwise stated, all the financial numbers we present today are for the fourth quarter of 2021 and in renminbi terms, while percentage changes are on a year-over-year basis. As Samuel mentioned, our performance in 2021 was characterized by healthy revenue growth and margin expansion, improved operational efficiency, augmented utilization rates, and consistent cabinet capacity deliveries, which proceeded according to schedule despite macro uncertainties. Net revenue in the fourth quarter of 2021 increased to 1.75 billion, a 29.4% year-over-year increase from the fourth quarter of 2020.

This increase was mainly due to increased customer demand for our highly scalable carrier and cloud-neutral IDC solutions from both wholesale and retail IDC customers, as well as the notable growth in our cloud business. Gross profit in the fourth quarter of 2021 was 380 million, representing a year-over-year increase of 29.1% and a sequential increase of 1.3%. Gross margin in the fourth quarter of 2021 was 21.8%, compared to 21.8% in the fourth quarter of 2020 and 24% in the third quarter of 2021. The year-over-year decrease in gross margin -- or small decrease in gross margin was primarily attributable to the massive delivery of new cabinets, which usually have a ramp-up phase to reach the expected profit level.

Adjusted cash gross profit, which excludes depreciation, amortization, and share-based compensation expenses, was 713.8 million in the fourth quarter of 2021, an increase of 22.7% from the fourth quarter of 2020 and 5.8% from the third quarter of 2021. Adjusted cash gross margin in the fourth quarter of 2021 was 40.9%, compared to 43.2% in both the fourth quarter of 2020 and third quarter of 2021. Adjusted operating expenses, which exclude the share-based compensation expenses, compensation for post-combination employment and acquisition, impairment of loan and receivable to potential investee, and impairment of long-lived assets, were 273.7 million in the fourth quarter of 2021, representing an increase of 27% from the fourth quarter of 2020 and 12.2% from the third quarter of 2021. As a percentage of net revenues, adjusted operating expenses in the fourth quarter of 2021 were 15.7%, compared to 16% in the same period of 2020 and 15.6% in the third quarter of 2021.

Adjusted EBITDA in the fourth quarter of 2021 was 463 million, representing an increase of 18.8% year over year from the fourth quarter of 2020 and an increase of 2.8% sequentially from the third quarter of 2021. Adjusted EBITDA in the fourth quarter of 2021 excluded share-based compensation expenses of 253 million. Adjusted EBITDA margin in the fourth quarter of 2021 was 26.5%, compared to 28% -- 28.9%, sorry, in both the fourth quarter of 2020 and the third quarter of 2021. Our net loss attributable to ordinary shareholders in the fourth quarter of 2021 was 27.3 million, compared to a net loss of 1.02 billion in the fourth quarter of 2020, and a net profit of 156.2 million in the third quarter of 2021.

Basic and diluted loss were 0.03 and 0.28 per ordinary share, respectively; and 0.18 and 1.68 per ADS, respectively. Each ADS represents six class A ordinary shares. As for our balance sheet, the aggregate amount of the company's cash and cash equivalents, restricted cash, and short-term investments as of December 31, 2021, was 1.71 billion, a decrease of 49.8% from December 31, 2020. Meanwhile, net cash generated from operating activities in the fourth quarter of 2021 was 664 million, compared to 283.8 million in the fourth quarter of 2020 and 134.7 million in the third quarter of 2021.

Our capex in the fourth quarter of 2021 was 2.2 billion, and the total capex for the full year 2021 was 4 billion. We expect to invest 4 billion to 5 billion in capex for both our data center constructions and M&A considerations for the full year of 2022. Looking forward, we will continue to explore various financing solutions, execute diligently on our dual-core growth strategy, increase our customer diversification to cultivate resilience, and further consolidate our position as a leading data center services provider in China. Now, moving to outlook, for the full year of 2022, we anticipate net revenues to be in the range of 7,450 million to 7,750 million and adjusted EBITDA to be in the range of 1,975 million to 2,125 million.

The midpoints of the company's updated estimates imply year-over-year increases of 22.8% and 16.9% in net revenues and adjusted EBITDA, respectively. This forecast reflects the company's current and preliminary views on the market and its operational conditions and does not factor in any potential future impacts caused by the COVID pandemic and is subject to change. This concludes our prepared remarks for today. Operator, we're now ready to take questions.

Questions & Answers:

Operator

Thank you. We would now begin the question-and-answer session. [Operator instructions] This question comes from the line of Yang Liu from Morgan Stanley. Please go ahead.

Yang Liu -- Morgan Stanley -- Analyst

Thanks for the opportunity to ask questions. Two questions from my side. The first one is on the demand. We see a downward revision of the full year new capacity delivery plan for 2022.

Could you please update us in terms of the wholesale and the retail fleet? And if I remember correctly, previously, 25,000 actually is 80% for wholesale and the scale retail and 20% for traditional retail business. But what is the new fleet and where do you see the downward revision of this amount? And the second is for the 2022 margin. We see the new -- the 2022 guidance for revenue growth, which is pretty strong, but the EBITDA on the growth revenue. What is the reason for that? Is it mainly because of the higher utility cost or is there any other reason behind that? Thank you.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

OK. Tim, do you want to take the question first, and then I can chime in later?

Tim Chen -- Chief Financial Officer

Absolutely. So, in terms of the demand outlook, we are looking at a roughly 60-40 split, wholesale versus retail. And so, the retail does comprise a component of the scale retail. So, actually, on the downward guide on the cabinets was actually a pro-rata guide.

So, we're not necessarily saying that there's one segment versus the other segment. And then I guess in terms of the question on the EBITDA versus the revenue growth, we are, as you know, steadily ramping up the wholesale side of the engine, but we also have other business segments. And so, some of the other business segments are not EBITDA types of businesses or they have lower margins. And so, that actually is increasing the sort of cost related to those.

More importantly is we also, in our guidance, have factored in the increase in utility costs. And that accounts for, let's say, around just under a 1% of the decline in margins as well. So, I think that's the main drivers, Yang, to your question. I guess, in terms of the overall demand outlook, in terms of the details, Samuel, I don't know if you wanted to add some color for Yang on the wholesale and retail demand that we've been seeing.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Yes, definitely. Again, thanks, Yang, for the question. I think, overall, given the favorable government policy and also the rise of data sovereignty and plus the digital transformation momentum, so, overall, we're still very bullish about our long-range outlook, in general. But we also have to understand that there is a macro issues that we have to be careful about.

Industry-wise and market-wise, there's also kind of different, I would say, different climate compared to about the last year. And therefore, company-wise, we want to be a little bit cautious. You know, one thing -- on one hand, there's a business priority, on the other hand, there's a resource needs that we want to balance. So, that's the reason.

Overall, business outlook, fantastic. And we're very bullish. But we're taking a cautious approach step by step. So, I think that's the additional color which I want to add on top of what Tim mentioned earlier.

Thank you, Yang.

Tim Chen -- Chief Financial Officer

Yang, sorry, one more point on the question you had on EBITDA. I think one of the other factors that you want to take into consideration as well is the fact that we added, you know, 13,000 cabinets at the end of 2021. And so, we are also factoring a drag on the EBITDA when it will take then for these cabinets to slowly ramp up during the course of '22. So, there will be more costs, obviously, in the first part of the year until they start ramping up.

And these are, you know, fixed costs with the delivery of cabinets.

Yang Liu -- Morgan Stanley -- Analyst

OK, thank you. As a follow-up, in terms of the other low-margin business, is it -- the concern is for Microsoft and also the VPN growing faster or -- and also other IT service business or something else have some dragging effect on the margin?

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

I can probably comment on that one. So, first of all, again, precisely, it is not a low-margin business. I would say it's not like pure IDC wholesale play, which is EBITDA type of business. You know, cloud business or value-added services, they are not much related to EBITDA, but it is a very healthy business, again, from the gross margin point of view.

But assuming you are also interested about -- to know about the Microsoft Cloud growth and also VPN growth, I think from a market perspective, the Microsoft Cloud, which basically includes the Azure, Office 365, Dynamics 365, and Power Platform, is highly welcomed in the enterprise space. And then, of course, we're benefiting from their growth by being the Microsoft's closest operating partners in China. From a number perspective, I would say, we continue enjoying the very healthy double-digit growth year over year. And then switch to the VPN that you mentioned about, which is the MPLS VPN.

It is still highly regarded as one of the highest quality options for enterprise connection. But we're seeing some of the customers having a need to balance their price performance. Some of them will continue to go for MPLS VPN, and then some of them will try to go with the SD-WAN. Luckily, because we do provide both routes and options to -- for customers to choose, we're seeing the SD-WAN business pick up very, very fast, high double-digit growth year over year.

So, I think combined together, it is still very healthy and great business for us. Hopefully, that answered your question, Yang.

Yang Liu -- Morgan Stanley -- Analyst

Yes. Thank you, Samuel.

Operator

[Operator instructions] Next question comes from the line of Edison Lee of Jefferies. Please go ahead.

Edison Lee -- Jefferies -- Analyst

Hi, Samuel and Tim. thank you very much for the presentation. I want to focus on your target for 2022. You take a range of 14,400 to 17,400 cabinets.

I want to know how comparable this number is versus the previous guidance of 25,000 cabinets because, obviously, wholesale build-out is not based on cabinets but based on macro bought, right. So, could you maybe help us understand how we should actually look at this new guidance range versus the previous 25,000? And number two is that, at the moment, do you have any thoughts about 2023 because, previously, it was a three-year target? And how should investors think about the 2023 situation based on your understanding of demand right now?

Tim Chen -- Chief Financial Officer

OK. Let me take a crack at this, Edison. Thanks for the questions. In terms of the comparability between the cabinets provided, I would say it's on a similar basis.

So, we've not changed the basis in terms of disclosing the number of cabinets. You're absolutely correct that the projects, which are wholesale based, these are higher density cabinets, and so, naturally, there are less cabinets. Now, in terms of the 2023 and looking beyond, I would sort of go back to 2020 -- end of 2020 when we provided the three-year forward look in terms of cabinets. It was at the completion of what was a extremely successful year for the industry and for us and our peers in 2020.

And clearly, with a lot of the regulatory headwinds that we saw in 2021, that changed dramatically and has not fully turned around yet here as we start 2022. So, I would say and echo Samuel's earlier comments, we are extremely bullish on the sector. We're extremely bullish on the customers' requirements. And if you look at it, you know, there is no reduction in terms of the end-users like ourselves, you know, using data, storing data, analyzing data.

And so, the demand is there. But again, we've taken a more cautious approach for 2022 just given the large number of uncertainties in the macroeconomic environment. We also look to the market and do see slower than expected move-in rates. And so, for '22, we've guided down all of these projects to a certain extent.

Some of these projects could be accelerated, so moved from a '23 timetable and moved up into '22. And similarly, you know, things -- if we see the pick up during the course of this year, then we would start the '23 projects, and therefore, that would lead to a higher number for '23. But frankly, at sort of March of '22, again, based on the outlook, I would say that '23 should be higher than '22. But whether we're, you know, going back to 25,000, again, I would take 25,000 as a end of 2020, what the market condition was at that time, and we're taking a more cautious approach given the current market conditions and probably don't want to push out a number out this early in the year for something that there isn't enough visibility on.

But again, we can turn on and off the capex. And therefore, we do expect that we can be quite nimble with regards to '23. Thank you.

Edison Lee -- Jefferies -- Analyst

Thank you, Tim. Can I follow up on two other issues? Number one is that I think you disclosed that 16 megawatts of new wholesale projects that you signed in 1Q this year and 11 megawatts you signed in 4Q last year. Is it true that these are all from existing wholesale customers and you did not sign up any brand new customers in 4Q and 1Q?

Tim Chen -- Chief Financial Officer

Samuel, you want to take a first crack at that?

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Yes. Again, thank you, Edison, for the questions. For the 4Q, from a wholesale perspective, we share about seven megawatts, that was indeed from the existing customers. But something we haven't really, you know, say out loud is our scale retail.

We also have big wins from scale retail customers in Q4, that was actually four megawatts in addition to their previous, you know, kind of an allocation in contract. And for the 1Q, because, yes, some of the orders come in from existing customer, but we do have the orders coming from new customers, public cloud providers, and also the e-commerce platform companies, and also of state-owned dedicated cloud, and so on and so forth. Again, we still have, you know, few more -- I would say, a few more discussions going on. And so, hopefully, probably in May time frame when we talk about our Q1 earnings release, we could share additional color for our Q1 performance.

Edison Lee -- Jefferies -- Analyst

OK. Thank you, Samuel. So, the state-owned company, state-owned enterprise cloud service provider is a brand new customer? Is that right?

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Yes.

Edison Lee -- Jefferies -- Analyst

OK. Thank you. Sorry, just one follow up for Tim on the power costs. You said that there will be a 1-percentage-point impact.

But my understanding is that all the wholesale contracts -- for all the wholesale contracts, you do not include power costs. So, that's why it is a pass-through. So, is that 1-percentage-point impact coming from retail customers because you have a one to three-year contract so that's why you have a time lag in terms of passing on power costs?

Tim Chen -- Chief Financial Officer

Yeah. So, as of the end of '21, that is in the large majority of our billable capacity was actually bundled with power. And a big portion of that is, yes, the wholesale business is still ramping up. So, it's a very small percentage.

We do expect that by the end of this year, the sort of unbundled or pass-through proportion will probably increase to, let's say, circle around 30%. And it is the ramp-up of the wholesale, which is one portion. But the second one is the extra power costs are being included in the quotation of the renewals, as well as the new retail contracts that we're signing. So, I think the answer to that is actually yes to both.

It is a rollover of new contracts, but also a ramp-up of the wholesale.

Edison Lee -- Jefferies -- Analyst

So, for power costs, are you assuming a 20% increase year on year on -- just on the unit power cost? OK, I'm not talking about [Inaudible]

Tim Chen -- Chief Financial Officer

Yeah, so -- yeah. So, overall, depending on the region, we're expecting between 10% to 20%, so full year 2021 compared to 2022. And again, that's -- the sort of impact that we're expecting is under 1% to our margins.

Edison Lee -- Jefferies -- Analyst

OK. Thank you very much. Yeah, that's it from me.

Tim Chen -- Chief Financial Officer

No, thank you.

Operator

Thank you for the question. Our next question comes from the line of [Inaudible] of CIBC. Please go ahead.

Unknown speaker

Good morning, management. My question is about the M&A plan, and you mentioned about 2022 capex plans between 4 billion and 5 billion. So, how much proportion is to be factored to be used in M&A opportunities? And do you see the price of IDC projects in the premium market show like going trend this year compared to 2020 and 2021? Thank you.

Tim Chen -- Chief Financial Officer

OK. Thank you very much. Let me take this question and, Samuel, you can add if there's anything else. For the question in terms of the percentage of M&A, I would sort of look back at '21 and say that, you know, roughly 30% of 2021 related to acquisitions of land power, acquisitions of service companies, and acquisitions of actual data center assets.

So, as I then look at what we've been planning out for 2022 and providing the 4 billion to 5 billion guidance, we're expecting probably in the range of 15% to 30%. It is a wider range, but that's because some of the M&A projects tend to be larger in size. And so, a swing of doing it or not doing it could actually result in a larger percentage change. Now, in answer to your question about where do we see pricing of IDC projects, I would say, you know, we're still using a guidepost in terms of what we see in a market of around 10 times EBITDA pricing.

Obviously, when we do evaluate the projects, it's not purely based on the price but also on the locations in terms of proximity to our existing data centers, as well as where the customer demands are in making that evaluation. The other point I would make is that, you know, obviously, the best projects that, you know, we -- where the vast majority of our projects are self-built projects. So, you'll see a lot more greenfield-brownfield that we've done in the past to build those into our self-built projects rather than acquiring EBITDA. So, I think on an opportunistic basis, there will be some acquisitions of operating data centers.

But again, we feel that it is a better use of our capital to not just focus on buying EBITDA, but rather focusing on both, again, where our customers' requirements are and making sure that we can put together a product that is a very attractive to our customers as well. Thank you.

Operator

Thank you for the questions. Our next question will come from the line of Sara Wang from UBS. Please ask your question.

Sara Wang -- UBS -- Analyst

I have two questions. First is do -- regarding on client demand. So, under the government's new Eastern Data, Western Computing initiatives, do we see more intentions from our clients moving into the back, no matter if retail or wholesale clients? And the second question is that I think you have mentioned that 2023 sales target should be higher than 2022. Might I ask, what are the key assumptions here? What do you think is the key moving factor? So, meaning for the 2022 sales target, are we assuming, you know, macro or internet regulation or supply chain disruption? So, what are the key factors you think will moving our sales target? Thank you.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

OK. I may want to take the first -- take the questions first and then work on Tim to provide additional color associated with that. I think both Tim and I, we mentioned about -- first of all, when we look at the whole market, we are -- we're actually bullish and we're bullish for reasons. Number one, you know, the government, you know, is providing a lot of great favorable policies, even further defined provide the directional guidance for Eastern Data, Western Computing.

On the other hand, government also mentioned about the data is going to be key element for future production. And so, the data sovereignty, all of a sudden becomes like, you know, higher-order bids for every single enterprise to consider about for their cloud optimization. And number three, because, you know, I think the COVID basically accelerated digital transformation. And so, nowadays, a lot of our enterprises, for them to accelerate their digital transformation is to go to either capex to opex, reduce the capex, and then -- and focus on the opex in order to resonate with their business growth.

On the other hand, they are continuing driving the cloud optimization. But in the past, they were probably one single public cloud, but the hybrid multicloud is going to become a new norm. And then the third one is to adopt every single thing as a service. And then because VNET, we're well-positioned that we have a dual-core growth engine, industry-leading ones.

And so, for that one, we're very bullish about the future. The way we see that every single day, we see a great momentum. But on the other hand, we also have to be very cautious because the macroenvironment is beyond our control. We're talking about the China-U.S., you know, frenemy situation is a new norm.

Industry-wise, there's going to be a power quota, power tariff. And also, you know, market-wise, you know, the customers, they're paying more attention on the cost. And there is also possibly a premium that we have to pay from the merger and acquisition point of view in a short period of time. And so, while we're bullish about the long term, but we're cautious in every single step we are taking.

So, that's, you know, I would say the overall perspective. And then probably Tim can chime in with some of the additional input that we're seeing every single day and the cautious steps that we're taking. Tim, do you want to add additional color?

Tim Chen -- Chief Financial Officer

Yeah, absolutely. And I would add to Samuel [Inaudible] of dig one layer deeper in terms of both what we've provided to the market in terms of guidance on cabinets, what Samuel is talking about in terms of the sort of sales. And I would link that then further to your questions around, you know, kind of how things look like in terms of, let's say, utilization rate assumptions. And, you know, with the delivery that we've made at the end of last year, you know, obviously, we do expect there to be a dip in terms of utilization rates, both due to a large number of deliveries, but also each year, we then reset, you know, the -- what cabinets are included under mature data centers, ramp-up, and so on and so forth.

But the desire is also to make sure that we are finding a healthy balance between adding capacity, meeting our customers' requirements, but also looking at the now and today and seeing where the customers are in terms of ramping up and also where their demands are. And so, I think there is the desire to find that balance. And so, I think with the reduction in the total number of cabinets, we're also still targeting utilization rates of around 60%. And obviously, to the extent that we see customers ramping up faster, then we would speed up the deliveries.

And in this case, right now, we are taking a more cautious approach because 2022 is not, as I said earlier on one of the other questions, you know, it's not 2020. And so, I think that we do need to find that balance then of making sure we deliver the right number of cabinets to match up with the ramp-up and the demands of our end customers.

Operator

Thank you for the questions. The next question comes from the line of Clive Cheung of Credit Suisse. Please go ahead.

Clive Cheung -- Credit Suisse -- Analyst

Hi. Good morning, management. Thank you for taking my question. Congratulations on the results.

My first question is on some -- on margin. You mentioned for such in existing customers, there is an increasing trend of taking up more value-added services. So, my question is if assuming this is a long-term trend, how is this going to impact margins, if any? Thank you.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

OK.

Tim Chen -- Chief Financial Officer

Yeah. Go ahead, Samuel. So, why don't you start, and then I'll add to that.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Sure. OK. Again, thank you, Clive, for the question. Yes, we do see a big trend for customers to take on the value-added services.

As I said, from a from a high-level perspective, you know, some of the uniqueness for China compared to the rest of the world, as I said before, is that while the rest of the world, you know, when enterprise is talking about the cloud transformation, they're basically three big players, which is AWS, Microsoft, and Google. But in China, we have more than a dozen cloud service providers. So, that's one thing. The second thing is why the data -- I would say privacy, transparency, computing, data sovereignty becomes the higher-order bit for enterprises to think about.

Then they will probably develop a new strategy. Other than one single public cloud, they might choose to go with a hybrid multicloud in a way that they want to make sure the data will be stored at their discretion. And then -- so that's the second thing. The third one, because the COVID-19 really impact the whole industry, so most of the companies, at least in China, they were so willing to go with the opex-driven approach, instead of a capex-driven approach.

Therefore, other than, you know, finding a partner to go with a colocation support, they want to have the partner, especially neutral partners, and they don't pick a side, but providing the full-stacked services, all the way from colocation support, the networking capabilities, and plus networking securities, and also the bare metal because they want to have a single tenant. They also want to have the O&M. They even want to have the hybrid cloud, multicloud management services and support, and so on so forth. And so, that gives VNET a great opportunity.

And we saw that, and we graphed that as well. The question is whether those value-added services are like data center or wholesale play, which is pure EBITA-driven. And my answer to that is probably not because, you know, those are -- the software capabilities and service capabilities may not have enough or a lot of the amortization, depreciation of elements. And so, that's the reason.

It may not be a pure apples-to-apples comparison for VNET versus our, I would say, IDC peer companies. But luckily, as you probably heard from, you know, some of our peer companies, they are seeing a huge retail tailwinds. They want to switch their focus to the retail engine. And so, I think, to some degree, that specific comments or statements endorse our growth strategy.

So, I would say, you know, we're happy to have a strategy with the dual-core growth engine, and we're very proud to continue to execute on that strategy. Tim, do you have any additional input you want to make?

Tim Chen -- Chief Financial Officer

No, I think, Samuel, you gave a good overview of the types of businesses in the value-added services and how it works. So, you know, again, I think we can dive into some of the modeling side on the callbacks then.

Clive Cheung -- Credit Suisse -- Analyst

Yeah, sure. Thank you. And my second question is in terms of the security of resources for our 2022 kind of expansion plans. How much of those are now secured? And actually, just that.

Yeah, thank you.

Tim Chen -- Chief Financial Officer

Yup. So, no, I mean, we've obviously given out the list of the actual pipeline projects, and those are secure. We have included a range this year. And that's because in terms of an overall timing, I think people were asking about overall timing.

We expect that a large portion of these will be actually at the end of the year. And so, we've included, from our experience already, the possibility that projects either would get shifted into '23 or pulled up. And so, we have included sort of others. And those are ones where, you know, I think there's uncertainty around the overall timetable from the customer point of view.

So, overall, yes, these have been secured. It really is a matter of timing in terms of whether it comes in this side of '22 or the other side of '22 into '23. I hope that answers your question.

Clive Cheung -- Credit Suisse -- Analyst

OK.

Tim Chen -- Chief Financial Officer

Yup.

Clive Cheung -- Credit Suisse -- Analyst

Yeah. Thank you. Thank you, Tim.

Operator

Thank you for the questions. The next question will come from Ethan Zhang from Nomura. Please go ahead.

Ethan Zhang -- Nomura -- Analyst

[Inaudible] I know that you mentioned that -- we see that customers see more of value-added service for our retail IDC business. So, just wondering what's the outlook for our retail MRR in the FY '22 and going forward? And the second question is regarding the new IDC projects. I note that we have just had -- we have some hotel projects under construction in Chengdu-Chongqing Economic Circle, so just want to see your view on the IDC demands in that region because I think this will come new market opportunity. Thanks.

Tim Chen -- Chief Financial Officer

OK. And maybe, Samuel, I'll take the MRR question, and then you want to take the second question?

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Sure.

Tim Chen -- Chief Financial Officer

Yeah. So, look, in terms of MRR, and I'm happy you've sort of asked, you know, what the view of MRR for '22 is? You know, it will move around quarter to quarter, as you've seen last year as well. But we do expect that the MMR to stay in that sort of, you know, 9,000-plus range and then trending upwards as there are more and more value-added services that we sell to our customers. Obviously, some of the volatility comes around the fact that not all the customers when they first signed on is taking on the full package of services.

And so, that's something which -- you know, the more cabinets we add, if they're more for what I call basic service or basic plus one versus a bundled solution of multiple services, I think that's going to affect the MRR. But I think, overall, MRR trend, again, we expect to be in a very positive trend going forward. Let me pass to you, Samuel, in terms of questions around the Chongqing region.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Yes. So, thank you, Ethan, for the questions. I think earlier this year, government has new directional guidance in terms of Eastern Data and also the Western Computing. So, if you look at the Eastern Data, Western Computing, and Chengdu and Chongqing area has been identified one of the eight regions.

And then that specific region, together with Beijing, Shanghai, Guangzhou, and Shenzhen, obviously, the Tier 1 cities, the four of them are actually defined as the Eastern Data. So, even though, sometimes, Chongqing are so like, you know, I would say a little bit kind of West compared to Beijing, Shanghai and Shenzhen from a geo perspective. But that specific area, you know, does have its promise from a business and also market perspective. And a lot of scenarios around, I would say, low latency, high bandwidth, and also no packet loss.

So, ideally, for a region specialized to provide the Eastern Data per se. So, that's also one of the areas that we'll continue to invest. As a matter of fact, one of the projects in our 2022 is to talk about that specific areas. And we're seeing, I would say, great momentum picked up.

If I look back to 2021 versus 2020, that's also one of the areas, start with small, but growing fast. So, we're very optimistic about the Chengdu and Chongqing areas. So, hopefully, that addressed your question, Ethan.

Operator

Thank you for the question. Next question comes from Albert Hung of J.P. Morgan. Please go ahead.

Albert Hung -- J.P. Morgan -- Analyst

Yeah. Thank you for taking my question. I want to ask, how should we think about the competitive landscape going forward? Because I see two major factors. One, the government's new policy, East Data, West Computing is driving the customer into the remote areas while VNET has historically hedged in Tier 1 cities.

Second, one of your competitors wants to focus more on retail business. So, I'm wondering how those two factor will affect your competitive landscape in the future? My second question is could you comment on the latest pricing in wholesale customer? As many of the large internet service providers are doing cost reduction, can you also comment down a bit on the future demand outlook? How should we get read it as the implication for pricing? Thank you.

Tim Chen -- Chief Financial Officer

Let me start -- thanks for the questions, by the way, Albert. Let me start with the question around sort of the retail side of the business in terms of I guess you've mentioned one of our peers wants to focus on the retail business. This is something which, you know, I think VNET has the history but also has built up the infrastructure to be able to service the customers -- the more complicated, actually, customer needs of the retail customers. It's not as simple as saying it's a retail customer, but using a colo model to service them.

And so, we're very confident of the fact that we have a distinct competitive advantage in that. And we show in each of the quarters the ability to not only keep, but also then continue to add the retail customers to our base. But secondly, I think more importantly, and this is what Samuel was referring to earlier on, is the value-added services. Again, it's not just to sell a retail customer a colo service.

And the whole reason why it is a very attractive proposition for them to come to VNET in the first place is the ability for them to come into a one-stop shop, a full stack of services, not having to deal with three, four, or five different vendors of the service. And I think that's a distinct advantage, which also then adds to the stickiness of the customer once they've come into our data centers. The second part of the question in terms of the, I guess, customer demand pricing side, maybe, Samuel, if you want to give a little bit of color to Albert?

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Yes. So, first of all, I would say, first and foremost, it is great to have a dual-core growth engine basically to help us. The IDC service provider is to balance our, I would say, resources and priorities. Resources are finite while the opportunity are infinite.

And so, when our peer companies, you know, focuses -- switched to the retail to a certain degree, endorse our strategy. And it is true that we're seeing great market opportunities and momentum in the retail front. You know, IDC business, overall, the wholesale and retail are sort of like, you know, kind of, you know, different kind of a way to look at it from a spectrum perspective. One focuses on the quantity, while the other focus on the qualities.

The wholesale business gives us predictability and also give us the scale, while the retails probably gives us a very healthy margin and also the stickiness of the customers. And to some degree, it is easier for retail business to go wholesale, while it is super hard for the wholesale to enter into the retail because you have to have the relationship with the customers. You have to have the track records. You have to have the great networking capabilities and coverage.

You have to have the whole bunch of value-added services. And your sale structure compensation package skillset is going to be so different. And so, it's not just about one company want to go to retail. Actually, every single IDC service providers want to have the dual-core growth engine, from my opinion.

But it is hard. But again, I would say, in a given period of time, you know, everybody wants to do a wholesale business. But on the other hand, you know, when there's a storm coming to the wholesale front, and then a lot of the company want to go to retail as well. So, I would say, we're very fortunate to have the balance of strategy.

And of course, as I mentioned earlier, we're super bullish about the future. But we're cautious about every single step we're taking because resources are finite. So, we want to make sure that we can optimize for a better business return. So, hopefully, that give, Albert, some of additional color for the questions.

Albert Hung -- J.P. Morgan -- Analyst

Thank you.

Operator

Thank you. In the interest of time, we'll now take the last questions from Gohan of Daiwa. Please go ahead.

Unknown speaker

Hello. I thank the management for the opportunity. My first question is regarding the deliveries guidance. So, are we being more cautious about the near-term outlook? So, is our capacity addition is more backend-loaded in '22, and what's our view on the deterioration around property value [Inaudible] for 2022? And my second question is about the recent -- the kinds of more in progress, and we see surging cases in Shanghai recent and also other Shenzhen regions.

And we have -- what's our view on the impact of capacity delivery in these regions? And as we are expanding our account to be a more diversified customer mix, it's all better if can we provide a more revenue mix on Shanghai and the Beijing region. Thanks.

Tim Chen -- Chief Financial Officer

OK. Let me take the first question, Gohan. Thank you very much for the question itself. In terms of the capacity, yes, I am expecting that more of the range of cabinets we're able to deliver will be in the latter part of the year.

Next quarter, we'll be able to give you or give the market, as in previous quarters, a clear guidance on how much of it we're expecting within first half versus how much of it will be in the second half of the year. But it is very much in line with what was the case last year and that things will be more back-ended as we are taking a more cautious approach in terms of how quickly we deliver new capacity while we actually have our main focus is making sure that we ramp up the existing capacity. That leads to the second question, which is kind of what we're expecting in terms of the ramp in our utilization rate trend. I would say that you should see a dip, as I mentioned before, in the early part of the year, and that will slowly then increase during the course of the year to the end part of the year as the ramp-up continues across all of our different data centers.

Samuel, do you want to take, I guess, the question around -- I think there were some questions around sort of customers move-in rates ramp-up progress.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

No, I think you covered that pretty well.

Tim Chen -- Chief Financial Officer

OK.

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

So, no, at least coming from me.

Tim Chen -- Chief Financial Officer

OK. Thanks, Gohan.

Unknown speaker

Thank you, management.

Operator

[Operator signoff]

Duration: -2 minutes

Call participants:

Xinyuan Liu -- Director of Investor Relations

Samuel Shen -- Chief Executive Officer and Executive Chairman of Retail IDC

Tim Chen -- Chief Financial Officer

Yang Liu -- Morgan Stanley -- Analyst

Edison Lee -- Jefferies -- Analyst

Unknown speaker

Sara Wang -- UBS -- Analyst

Clive Cheung -- Credit Suisse -- Analyst

Ethan Zhang -- Nomura -- Analyst

Albert Hung -- J.P. Morgan -- Analyst

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